SEC Reaches $11 Million Settlement With Wells Fargo For Indian Tribe
An article in Investment News reported that the U.S. Securities and Exchange Commission (SEC) had reached a settlement with Wells Fargo for fraud related to a tranche of collateralized debt obligations (CDO) called Grand Avenue II, which was linked to the performance of mortgage backed securities (MBS). Wachovia was taken over by Wells Fargo in 2008 as the bank was on the verge of collapse. The fraud stemmed from the Grand Avenue deal, which Wachovia knew was worth much less than its face value, as evidenced by the fact that it listed the CDO on their books at 52.7 cents on the dollar. Then even as the market was beginning to come apart, Wachovia sold the securities to the Zuni Indian tribe and other investors for US 90 cents to US 95 cents on the dollar. Unbeknownst to them, the price they paid was nearly 75% higher than the price the investment was listed for on their books. A year later the deal defaulted and the tribe lost millions.
Without admitting any wrongdoings, Wells Fargo agreed to a payment of $6.75 million of disgorgement and a civil penalty of $4.45 million, with $7.4 million to be distributed to investors who were the losers on the deal.